The past year has been a truly productive one for the Cyprus real estate industry. Having overcome a relatively short period of recovery after the pandemic, the market began to demonstrate rapid growth. According to the Danos Cyprus Real Estate Market profile report, the level of sales in 2022 reached the record levels of fifteen years ago. The average increase in the cost of apartments by 12% and private houses by 9% is primarily due to the increase in demand combined with the rise in the cost of construction itself. The number of contracts for the purchase of real estate by foreigners increased year-on-year by almost 67%, locals by more than 15%. The discovery of last season was the picturesque Paphos, which according to most sales experts, offers the best quality of life on the island.
State of the market
The lion's share of the Cyprus real estate market belongs to apartments, sales of which increased by 42% over the past calendar year. The influx of investment in this area is explained by the relocation of offices of foreign companies in the jurisdiction of Cyprus. In addition, many citizens of the European Union and third countries choose the sunny island as a place of permanent residence. The volume of investments in residential real estate by the native population also occupies its stable segment.
The financial atmosphere of the housing market in 2023 could be affected by a number of domestic fiscal parameters, including a potential increase in interest rates on loans. Nevertheless, the construction industry in Cyprus is operating at full capacity. The implementation of numerous infrastructure projects, a growing list of public and private orders, combined with the support of European investment and recovery funds, serve as a solid buffer against negative economic developments.
New buildings
Developers in Cyprus are looking to the future with confidence and are constructing projects in all urban districts of the island. After the decline in interest in the luxury real estate sector since November 2020, last year and the beginning of this year showed an increase in sales of properties in the Premium segment by more than 30%. The main investors in apartments and cottages in the price category above one million euros are the owners of successful businesses from around the world. The price range of 300-600 thousand euros is characterized by increased demand due to the possibility of acquiring permanent residence status in the short term. Growing interest in such houses and apartments are foreign citizens, a large percentage of which are natives of the post-Soviet republics. Experts in the field of sales of Cypriot real estate noted that the proposals in the price category of 300 thousand plus, in the last stage of readiness, every day is becoming less and less.
The volume of sales of residential real estate costing from 100 to 300 thousand euros showed an annual growth of about 20% and more than 40% compared to the last year before the pandemic. The versatility of the use of such apartments both for own residence and rental business, makes this category the most demanded among locals. It should be noted that the primacy in terms of demand for new residential real estate in all price segments and the corresponding price growth, among the cities of Cyprus, still belongs to the seaside Limassol.
The cost of construction
Despite the growing demand for Cypriot real estate, the number of building permits last year decreased by 5%. The negative parameter is primarily caused by an increase in the cost of construction materials by up to 30% over the last two years. The trend has become global, primarily due to the increase in the prices of raw materials and energy, while the country's construction industry is deeply integrated into the global sectoral market. Given the geographical location of the Republic of Cyprus, the final cost of construction is also negatively affected by the increased cost of delivery and logistics. The forced increase in prices disturbs the market balance in the industry, primarily in the construction of individual houses. The price indexes for construction works have reacted to the rise in construction costs: from 7 to 15% depending on the category of real estate. When analyzing and forecasting for 2023, builders reasonably expect stabilization or reduction in the growth of prices for components and materials. In practice, builders are increasingly using energy-saving and innovative technologies.
Secondary market
There is a reasonable opinion that the cost of real estate in the secondary market, although at a slower pace, will follow the same course as new buildings. On the one hand, this is again facilitated by the influx of foreign citizens, who for various reasons agree to invest in secondary housing. On the other hand, such real estate attracts residents of Cyprus as a means of obtaining a stable income from the rental business. The growth rate of the cost of paying rent on the island has shown impressive growth reaching, in some places 70%. The most liquid from this position remain apartments in seaside towns, located near the coastline or near office centers. Individual cottages with a small distance from the sea, first of all attracting the attention of foreigners, also demonstrate progressive price growth. An example of this is the objects in Paphos, actively purchased by residents of northern Europe. More affordable houses located in areas away from the coast are of most interest to locals as a safe and profitable investment for future generations.
Market expectations in 2023
There is no realistic expectation of a significant correction in the housing market in the near term, so the following assumptions can be considered logical and legitimate in the current economic environment:
- Paphos will remain one of the centers of attention of investors, primarily areas close to the sea;
- the share of foreign buyers of residential real estate in Cyprus will increase;
- in areas remote from the business infrastructure is expected to decrease growth or stabilization of rental prices;
- sales growth forecast for the following cities: Limassol - 5%, Larnaca - 2-3%, Paphos - 5%, Famagusta - 5% and the capital Nicosia - about 3%;
- in seaside towns, developers will pay more attention to closed residential complexes of medium price category;
- domestic economic factors will redirect the priorities of local residents towards secondary real estate.
Despite the increase in the cost of apartments and rents, offers in Cyprus remain favorable compared to similar properties in northern and western Europe. Given the close relationship between sales values and yields, investors will be wise to consider the price factor when buying. Nevertheless, the growing housing market offers a wide range of choices for profitable capital allocation.
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